Inflation sees student loan rates hiked

This article was correct at the time of publication. It is now over 6 months
old so the content may be out of date.

Many former students face far higher repayment rates on their loans as a result of the sharp spike in inflation.

With savers lamenting an increase in the Consumer Price Index rate of inflation to 3.4% earlier this week, it is now the turn of students to suffer.

The interest rates for graduates that took out a loan before 1998 are based on the Retail Prices Index (RPI) inflation rate that is reported each March.

As such, those that are paying a rate of -0.4% (the inflation figure reported last March) are now faced with paying 4.4% interest on their student loans.

The new rates, which are expected to be confirmed formally by the government, will come into effect from September.

"Some graduates who are currently paying a 0% interest rate on their loans will be disappointed to see their interest rate grow to over 4% later on this year," commented Darren Cook, spokesperson for Moneyfacts.co.uk.

"With a variable rate of interest, you need to balance the peaks with the troughs. But an interest rate of 4.4% is still one of the cheapest forms of finance around."

Graduates that took out a loan after 1998 will continue to pay interest that is equal to the base rate of interest plus 1% or the RPI, depending on which measure is the lowest.

At present, people with these loans are paying interest of 0% as the Student Loan Company ruled that negative interest rates would not apply to them.

If the base rate was to remain at 0.5%, graduates with these loans would pay an interest rate of 1.5%.

Related Articles

When used well, credit can be a viable way to help make ends meet and balance the books – but the problem comes when that credit is of the high-cost variety. The regulator has will be taking a closer look at the sector to see what else can be done.

The payday loan market has been under fire a lot in recent years, and as a result, the financial regulator stepped in. But has it made a difference? Unfortunately, it looks as though there’s still a lot of work to be done.

Competition in the personal loans market is as hot as ever, so much so that one loan provider has slashed rates to the lowest on record – but only to those who fit the bill. The shopping bill, that is…